How to Get a Small Business Loan for a Startup

Starting a business often takes more than just time and energy — it also takes money. Whether launching a new online store, opening a small cafe, or building a local service business, the upfront costs can be significant. You may need to buy equipment, secure inventory, pay for marketing, or cover payroll while revenue remains uncertain.

You’ll likely need a small business loan if you don’t have enough savings or investors. But for startups, getting approved isn’t always easy. Most lenders want to see revenue, time in business, and strong credit — all things a new company may not yet have. That doesn’t mean funding is out of reach. It just means you need to understand what lenders look for, what types of loans are available, and how to prepare your application correctly.

What Makes a Business a Startup

Simply put, a startup is a business just getting off the ground. The U.S. Small Business Administration (SBA) generally defines startups as businesses operating for less than two years. Most startups have limited revenue, unproven business models, and little or no business credit history.

That combination makes startups riskier from a lender’s perspective. Traditional banks, in particular, tend to favor established companies with consistent cash flow. But, some lenders — including community banks, online lenders, and SBA partners — are willing to work with startups, especially if the business has a strong plan, a clear path to profitability, and an owner with solid personal credit.

The important thing is to know where your business stands. If you’ve just formed an LLC, haven’t made many sales, or are still in the planning phase, you’re in the startup category. That affects the type of financing you should look for.

When a Startup Should Consider a Business Loan

A loan isn’t the right move for every startup. Borrowing money means taking on a financial obligation that has to be repaid — with interest — whether your business succeeds or not. So, the decision to apply should be strategic.

It usually makes sense to consider a loan if:

You have a specific, necessary expense (such as equipment, marketing, or location buildout) that will help generate revenue.
You’ve launched the business and can show some early signs of traction — sales, customer interest, partnerships, or growth potential.
You have a repayment plan and can estimate how the loan will be paid back from future revenue or savings.

Avoid taking out a loan to cover vague or undefined costs. Lenders will ask where the money is going; your answer must be specific and realistic.

Types of Loans Available for Startups

Even though most traditional business loans require a few years of operating history, several startup-friendly options exist. Each has its pros, cons, and qualification requirements.

SBA Microloans

The SBA Microloan program offers up to $50,000 in funding for small businesses and certain nonprofits. Unlike other SBA loans, these are designed specifically for early-stage businesses and issued through local intermediary lenders, typically nonprofit community-based organizations.

Loan details:

Maximum loan amount: $50,000
Average loan size: $13,000
Repayment term: up to 6 years
Interest rates: usually between 8% and 13%

Microloan funds can be used for working capital, equipment, inventory, and supplies — but not to pay off existing debt or purchase real estate. Most lenders will ask for a business plan and may require collateral or a personal guarantee.

Business Credit Cards

These are among the most accessible financing tools for new businesses. If your credit score is good (typically 670 or higher), you can qualify for a business credit card, even if your company is brand new.

Many cards offer 0% APR for the first 12 to 18 months, allowing you to borrow without interest for a limited time. After that, rates often rise to 15%–25% APR, so this option is best for short-term expenses you can repay quickly.

Keep in mind that you’re personally liable for the balance, and carrying debt month-to-month can become expensive.

Personal Loans Used for Business

Some founders turn to personal loans if your startup has no revenue or credit history. These are based on your income and credit profile, not your business’s.

This is a practical option if you have good credit (usually above 680), stable personal income, and a clear plan for using the funds. Loan amounts typically range from $1,000 to $50,000, with 2 to 7-year repayment terms. Depending on creditworthiness, interest rates vary from around 7% to over 30%.

Just be cautious: Personal loans affect your personal credit and finances. Even if the business fails, you’re still responsible for paying it back.

Equipment Financing

Equipment financing may be a good fit if your startup needs to purchase physical assets — like vehicles, machinery, or commercial appliances. These loans are secured by the equipment you’re buying, which lowers the risk for lenders and may make approval easier.

Loan amounts depend on the value of the equipment. Terms typically match the expected useful life of the asset. If you default, the lender can repossess the equipment.

This option usually requires a small down payment, and interest rates vary depending on your credit and the lender’s criteria.

Online Business Loans

Some fintech lenders offer small business loans specifically for startups. Their approval criteria are more flexible than those of banks, but rates are often higher. Many of these lenders expect at least 6–12 months of business activity and minimum monthly revenue—usually around $5,000 to $10,000.

Repayment terms are short, often 2 to 24 months. Interest or factor rates can add up quickly, so read the terms carefully and calculate your total cost.

Key Factors Lenders Look at Before Approving a Loan

Since most startups don’t have long financial histories, lenders use alternative indicators to evaluate applications. Here are the most important ones:

Personal Credit Score

Your credit score is one of the most important factors. A score of 680 or higher increases your chances of approval and helps you get better rates. Lower scores don’t automatically disqualify you but can limit your options or result in higher interest.

Lenders view your credit score as a measure of your reliability with debt. Ensure your credit reports are accurate and reduce any outstanding balances.

Business Plan and Financial Forecast

Lenders want to see a clear, realistic plan for the business. Your business plan should explain your product or service, revenue model, target market, competitors, and how you plan to use the loan. Include financial projections for at least 12 to 24 months.

Some lenders, including SBA Microloan providers, won’t consider your application without a business plan.

Collateral or Personal Guarantee

If your business lacks assets, you may be required to offer personal collateral (like a car or savings) or sign a personal guarantee, which makes you responsible if the business fails to repay.

Required Documents for a Loan Application

Expect to provide both personal and business-related documents. Requirements vary by lender, but typically include:

Government-issued ID
Business plan and financial projections
Personal and (if available) business bank statements
Personal tax returns (1–2 years)
Business registration or license
EIN (Employer Identification Number), if you have one
Lease agreement (if applicable)
Documents proving collateral (if needed)

How to Apply for a Startup Business Loan Step-by-Step

Here’s how to approach the loan application process:

Assess your financing needs. Know how much you need, why, and how you’ll use it.
Check your credit. If your score is below 650, work on improving it before applying.
Create a business plan. Include goals, loan usage, and realistic revenue projections.
Compare lenders. Look into traditional banks, SBA lenders, credit unions, and online lenders.
Gather the required documents. Get your tax returns, statements, licenses, and collateral info.
Apply. Submit applications starting with community-focused or startup-friendly lenders.
Review offers. Analyze interest rates, fees, repayment terms, and guarantees.
Accept and receive funds. Once approved, sign the agreement. Funding can take a few days or weeks.

What to Do Before Applying to Increase Approval Chances

Strong preparation is the key to getting approved for a startup loan — especially when you don’t yet have years of financial track record. Here’s how to improve your chances:

Check and improve your credit score. A score of 680 or higher is ideal, but even a 650 can work with the right lender. Pay off debts, correct errors on your credit report, and avoid new credit inquiries before applying.
Open a business bank account. Keeping finances separate shows lenders you’re organized and serious. It also helps document business activity if your company is still young.
Create a simple but professional website. A single-page site with your business name, services, and contact info builds credibility. Lenders sometimes search online to confirm your business exists.
Start saving for a down payment. Having 10% to 20% of the requested loan amount available — even if not required — reduces lender risk and shows financial responsibility.
Build early credit history. Apply for a business credit card or a small short-term loan and repay it on time. This creates a positive borrowing record you can reference later.

Common Reasons Applications Get Denied

Many startup loan applications are rejected not because the idea is bad — but because key lender criteria aren’t met. Below are the most common reasons:

Low personal credit score. Anything below 640 puts you in the “high-risk” category, limiting your loan options and increasing interest rates.
Weak or incomplete business plan. Lenders want to see more than just a concept — they need a roadmap for how the business will generate income, how the loan will be used, and when you expect to become profitable.
No collateral or personal guarantee. Most startup loans are unsecured, but many lenders still expect personal guarantees or asset backing — such as a car or savings account — especially if business revenue is limited.
High existing debt. If your debt-to-income ratio is already high, lenders may doubt your ability to repay more debt.
Not enough time in business. Many lenders require at least 6–12 months of operations. Newer startups will need to work with lenders who specialize in early-stage financing.
Unclear purpose for the loan. Vague answers like “working capital” or “growth” are insufficient. Be specific — explain what you’ll buy, how it will grow your business, and how you plan to repay.

Understanding these pitfalls helps you avoid them proactively. If you’re denied, most lenders will offer feedback—use it to improve and reapply smarter.

Alternatives if You Don’t Qualify for a Loan

If you don’t qualify for a traditional startup loan, you still have other funding paths to explore — many of which successful entrepreneurs use.

Bootstrapping is the most common approach. It involves funding your startup with savings, credit cards, or early revenue. While growth may be slower, you maintain control and avoid debt.

Grants can be a game-changer. These are non-repayable funds offered by government agencies, private organizations, and corporations. While competitive, many grants target small and minority-owned businesses. Sites like Grants.gov and SBA’s local district offices list current opportunities.

Friends and family can also be sources of informal funding. This option should still be handled professionally—write down the terms, whether it’s a loan or investment, and clarify expectations.

Crowdfunding platforms like Kickstarter, Indiegogo, and GoFundMe allow you to raise money directly from supporters. This works best if your business has a consumer-friendly product and a compelling story.

Accelerators and incubators offer early-stage funding (typically $20,000 to $150,000) and mentoring, workshops, and investor connections. In return, they often take a small equity stake in your business. Programs like Y Combinator, Techstars, and local university accelerators are worth exploring.

These alternatives can either replace the need for a loan — or help you build the foundation needed to qualify for one.

How to Handle the Loan After Approval

Getting approved for a loan is a major milestone, but what you do next truly matters.

First, use the funds exactly as described in your loan application. If you said the money would go toward equipment, don’t use it for payroll or advertising. Sticking to the plan maintains your credibility and protects you from breaching your loan agreement.

Second, create a repayment schedule based on your expected cash flow. Set reminders or automate payments to avoid missed due dates. Even one late payment can damage your credit and future borrowing potential.

Keep detailed records of how the money is spent and how it contributes to your business. This information will be useful for taxes, audits, or when applying for future financing.

If your revenue drops or you face a temporary setback, contact your lender immediately. Many lenders are open to modifying terms, delaying payments, or offering relief — but only if you’re proactive.

Conclusion

Securing a small business loan as a startup isn’t easy — but it’s far from impossible. Success depends on understanding the lending landscape, knowing your business’s financial position, and preparing thoroughly before applying. Lenders want to see responsibility, planning, and a credible path to repayment.

Even if you’re not yet eligible for a loan, there are many ways to fund your business — from grants and crowdfunding to accelerators and bootstrapping. Use those paths to build momentum, improve your creditworthiness, and qualify for more favorable funding.

Your first loan isn’t just about capital — it’s a foundation. Handle it wisely, and it can unlock better opportunities as your business grows.

Additional Resources for Borrowers

If you’re launching a startup and exploring small business loans, the following trusted U.S.-based resources can help you better understand your options, prepare stronger applications, and access support — all in compliance with American laws:

U.S. Small Business Administration (SBA). The SBA offers detailed guidance on government-backed loan programs such as 7(a) and Microloans and tools to connect with approved lenders and local SBA offices.
SCORE. A nationwide nonprofit organization providing free business mentoring, loan preparation advice, and educational workshops. Supported by the SBA.
America’s Small Business Development Centers (SBDCs). Free one-on-one consulting and training will help you develop a loan-ready business plan, understand financials, and explore funding options.

Grants.gov. The official federal portal for finding and applying for U.S. government grants. A valuable resource for startups seeking non-repayable funding.